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VT 
The US is contemplating restrictions on software-controlled exports to China, including devices like laptops and jet engines. This is considered a response to China’s recent restrictions on rare earth exports.
Market Impact of Trade Restrictions
US Treasury Secretary Scott Bessent indicated that any measures could occur in tandem with G-7 allies. At present, the AUD/USD has decreased by 0.08% to 0.6480.
A “trade war” typically refers to an economic conflict involving high levels of protectionism. It often involves tariffs and counter-measures, raising import costs and living expenses.
The US-China trade war commenced in 2018, with the US imposing trade barriers on China, citing unfair practices and intellectual property theft. Following retaliatory tariffs from China, tensions built until a Phase One trade deal in 2020. This aimed to reform China’s trade regime but was overshadowed by the pandemic.
With Donald Trump re-elected in 2025, proposing 60% tariffs on China, trade tensions are expected to escalate. This could disrupt global supply chains, reduce investment, and impact consumer price inflation.
Lallalit Srijandorn, a Paris-based digital entrepreneur originally from France, authored this piece.
Hedging Strategies in a Volatile Market
The White House signaling new export curbs on software creates significant market uncertainty, suggesting a risk-off environment is ahead. We should prepare for a spike in volatility, making VIX call options or futures a useful hedge against this political risk. We saw the VIX jump over 40% in May 2019 during a similar trade escalation, showing how quickly sentiment can sour.
The Australian dollar’s immediate drop to 0.6480 reflects its sensitivity to China’s economic outlook, our largest trading partner. With over 30% of Australia’s exports historically destined for China, shorting the AUD/USD through futures or buying put options is a direct trade on these renewed tensions. We should also watch the offshore yuan (USD/CNH), as pressure could push it back towards the 7.40 level seen earlier this year.
US technology stocks are clearly in the firing line, so we should consider buying put options on the NASDAQ 100 index or on semiconductor ETFs. Many large US tech companies rely on China for around 20% of their total revenue, making them vulnerable to both US restrictions and Chinese retaliation. This creates opportunities for pair trades, such as shorting the Hang Seng Tech Index against long positions in less-exposed US industrial sectors.
Fears of a global slowdown will likely weigh on industrial commodities, making short positions on copper futures a sound strategy. We must also remember the agricultural impact from the last trade war; back in 2018, US soybean exports to China fell by over 70% following retaliatory tariffs. Traders should therefore watch for any weakness in soybean prices, as China may again pivot to suppliers like Brazil.
